Economy Killing Rate Hikes Won't Fix Inflati

Investment Analysis Clubs Macro Economic Trends and Risks
1

Stiglitz Says U.S. Rate Hikes Killing Economy Won’t Fix Inflation
https://www.fa-mag.com/news/stiglitz-says-us-rate-hikes-kill…

The US economy needs supply-side interventions rather than interest-rate hikes by the Federal Reserve that will fail to bring inflation under control, said Nobel laureate economist Joe Stiglitz.

“Raising interest rates is not going to solve the problem of inflation,” the Columbia University professor told Lisa Abramovicz and Tom Keene on Bloomberg Television at the World Economic Forum in Davos, Switzerland. “It’s not going to create more food. It’s going to make it more difficult because you aren’t going be able to make the investments.”

intercst

7 Likes
2

The US economy needs supply-side interventions rather than interest-rate hikes by the Federal Reserve that will fail to bring inflation under control, said Nobel laureate economist Joe Stiglitz.

Depends on what you finger as the reason for the inflation.

If you decide the cause of inflation is rising wages, then strangle the economy, with the intent of pushing unemployment up to 6%+, so the “JCs” can revoke the pay and benefit increases they have had to offer to attract employees in a full employment environment.

Roll back the wage increases of the last couple years, while maintaining “stable” prices at current levels by keeping the “shortage” narrative alive, and “JC” profit margins increase, while net inflation will be low.

Keep in mind, Powell isn’t even paying lip service to a “soft landing” that every predecessor and media talking head has promoted since forever.

He pays lip service to employment, but, in the next breath, says that is not the priority.

Powell says he can’t guarantee a ‘soft landing’ as the Fed looks to control inflation

“Our goal, of course, is to get inflation back down to 2% without having the economy go into recession, or, to put it this way, with the labor market remaining fairly strong,” he said. “That’s what we’re trying to achieve. I think the one thing we really cannot do is to fail to restore price stability, though. Nothing in the economy works, the economy doesn’t work for anybody without price stability.”

https://www.cnbc.com/2022/05/12/powell-says-he-cant-guarante…

Steve

3 Likes
3

The US economy needs supply-side interventions…
Since we don’t yet have the Sirius Cybernetics Corporation, I suggest we put Stiglitz in the first group up against the wall when the revolution begins. 40 years of supply-side bull got us into this mess, and it sure as hill won’t get us out of it.

4

4% will be the new normal.

Labor and Energy will see to it.

5

Since we don’t yet have the Sirius Cybernetics Corporation,

That’s OK, we have Lockheed upholding the tradition of overcharging and underdelivering.

Steve

6

The US economy needs supply-side interventions

These two economists are inspiring zero confidence in me. No mention of taxes. Since when do we use ‘supply side’ with government control? I get that mixes apples and oranges but the oranges are dumb enough to think it is supply side econ and they were right all along.

7

The US economy needs supply-side interventions…
Since we don’t yet have the Sirius Cybernetics Corporation, I suggest we put Stiglitz in the first group up against the wall when the revolution begins. 40 years of supply-side bull got us into this mess, and it sure as hill won’t get us out of it.


mmmms,

These guys are talking the TVA sort of socialism all over again but twenty years too late. W. Bush let the lending to mad to stop a great depression and political moves for socialism. Okay. Only the individuals who lost money felt it. We did not socialize like FDR.

Then there is Truman, not a socialist, and now we want to skip the 90% tax rate on the top bracket. Okay. But that tax rate allowed for major GDP growth with generally lower inflation.

Instead numbnuts wants socialism. I guess the ivory tower is getting rusty.

supply side interventions is not supply side econ. It is not demand side econ either. Later on it destroys the economy by stripping the profit motive. Or reality out of it.
8

The US economy needs supply-side interventions …

OK. So what interventions? Get a little more specific, Mr. Stiglitz.

From my vantage point in the cheap seats, the problems seem to be external shocks. We have a war in Ukraine that is threatening some food supplies. Maybe.

Ukraine exports about $27 billion of agricultural products.
https://www.fb.org/market-intel/ukraine-russia-volatile-ag-m…

Global value added by agriculture, forestry, and fishing is about $3.5 trillion
https://reliefweb.int/report/world/fao-statistical-yearbook-…

Yes, we’ve got some mismatches here. The years are for 2021 and 2019, respectively. And the world total includes forestry and fishing. But even if we cut the world total in half to account for these additional items, we’re still looking at $1.7 trillion of world production compared to $27 billion Ukrainian exports. That’s still less than 2% of world food.

Yes, yes, there’s logistics of getting food where it needs to be if it’s not coming from Ukraine. And I’m also assuming that we lose ALL Ukrainian production, which is likely an overstatement of the problem.

Then there’s this bit: The world produces about 4 billion metric tons of food each year. But 1.3 billion of that goes to waste. That’s more than 30%.
https://www.bloomberg.com/news/features/2020-12-15/no-more-h…

We could make up the Ukrainian shortfall just by using existing food stocks more wisely and cutting down on waste. Eliminate 1/10th of the waste and we add 3% to usable supplies. I calculated Ukraine’s contribution at 2% of world food.

So perhaps a bit of supply side intervention might help here. Would help with refrigeration and storage be useful? Maybe incentives to put ugly produce into the supply chain instead of throwing it away? https://www.forbes.com/sites/briankateman/2020/03/02/the-tim…

But what other external shocks are there? Perhaps some disease or something? (cough, cough, COVID, cough). (Peter, get that cough checked out, you might have COVID!)

We’ve got shortages of various products coming out of China because of their zero tolerance for COVID transmission. Get a few cases, shut down whole cities. That has a bit of an impact on supplies. How would supply side interventions help with that?

Production could move elsewhere, but that requires factories and workers and equipment in new places. Those take time to build, acquire, and train. Maybe a year to open a factory? Maybe 3? Certainly not something that can be fixed in a quarter or two.

But maybe someone smarter than me knows how to help with this problem.

And I’m sure there are more potential supply side interventions. But what are they? Again, I’m in the cheap seats, not on the field, so don’t ask me. But someone needs to ask the question.

–Peter

1 Like
9

The US economy needs supply-side interventions ...

OK. So what interventions? Get a little more specific, Mr. Stiglitz.

I think Stiglitz is missing the obvious, an obvious that has been debated right here at METaR! Business went too far in the search of efficiency at the cost of fragility. Too finely tuned “Just in Time Inventory” or “Just in Time Manufacturing.” At MIT they developed The Beer Game to show how cycles are created. When you fine tune “Just in Time Inventory” you do so by taking on more risk of supply chain disruption.

MIT Sloan Beer Game Online

The Beer Distribution Game, one of the oldest and most widely used management simulations, is now available online as an interactive multiplayer websim. Provides an opportunity for participants to play the role of managers in a complex dynamic system, specifically, managers in a supply chain representing the production and distribution of beer (there is no alcohol in the game; for younger audiences, the product can be root beer).

https://mitsloan.mit.edu/teaching-resources-library/mit-sloa…

I doubt that PROFESSOR Joe Stiglitz ever ran a business ever in his life. Warren Buffett started with a paper route…

11 Millionaires Who Started Out with Newspaper Routes

https://www.rd.com/list/millionaires-who-started-out-with-ne…

Maybe Joe has a Davos route…

The Captain

1 Like